Improve Administration of International Information Return Penalties by Eliminating Systemic Assessments, Offering a First-Time Abatement Waiver, and Increasing Taxpayer Awareness

Activity 1: Continue to advocate for the IRS to end the systemic assessment regime for Chapter 61 international information return penalties.

Activity 2: Continue to meet with the IRS Office of Servicewide Penalties and the Taxpayer Experience Office to discuss extending eligibility for first-time abatement to all international information return penalties regardless of whether the underlying return was filed late.

Activity 3: Advocate for updating the lRM to require review of reasonable cause relief requests before assessing penalties when these requests are submitted in conjunction with late filed international information returns potentially giving rise to penalties. (closed 1/3/25)

Activity 4: Collaborate with the IRS to discuss the possibility of adding language to the Schedule B and related instructions to include foreign gifts as potentially reportable.

Activity 5: Participate in the Office of Servicewide Penalties working group to propose administrative reviews in lieu of systemic assessment of International Information Return (IIR) penalties and to develop more efficient mechanisms for taxpayers to mitigate IIR penalties by showing reasonable cause, proof of timely filing, or application of the first-time abatement administrative relief prior to assessment.

Activity 6: Propose and participate in a new TAS-IRS working group to explore a civil penalty-free version of the Delinquent International Information Return Submission Procedures, under which taxpayers who are not under audit and have no income to report can come forward, file delinquent information returns, and remain compliant for future years to avoid penalties.

In FY 2024, TAS met with the Office of Servicewide Penalties quarterly and will continue to advocate for extending eligibility for first-time abatement to all international information return penalties regardless of whether the underlying return was filed late.

On November 20, 2024, the IRS updated Internal Revenue Manual (IRM) 20.1.9.13.3 and IRM 20.1.9.14.3 to clarify reasonable cause statements should be considered before manually assessing penalties, when included with late-filed Forms 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts, and Forms 3520-A, Annual Return of Foreign Trust With a U.S. Owner. In conjunction with TAS continuing to advocate for extending eligibility for first-time abatement to all international information return penalties, TAS will advocate for updating the relative IRM(s). This activity is now completed based on the IRM changes.

On March 15, 2024, the Taxpayer Advocate Service (TAS) submitted a recommendation to the product owner, adding language to the Schedule B and related instructions to include foreign gifts as potentially reportable. On October 17, 2024, the IRS informed TAS it will stop the automatic assessment of late filed Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts Part IV, and Form 3520-A, Annual Return of Foreign Trust with a U.S. Owner penalties if there is a reasonable cause (RC) statement attached to the return and RC is accepted. On October 24, 2024, the IRS publicized the policy change. Due to the policy change, TAS withdrew the request.

TAS will continue to work with the Office of Servicewide Penalties to propose administrative reviews in lieu of systemic assessment of International Information Return (IIR) penalties and to develop more efficient mechanisms for taxpayers to mitigate IIR penalties by showing reasonable cause, proof of timely filing, or application of the first-time abatement administrative relief prior to assessment. TAS met with the Office of Servicewide Penalties quarterly in FY2024 and will continue to advocate for extending eligibility for first-time abatement to all international information return penalties regardless of whether the underlying return was filed late. On March 15, 2024, the Taxpayer Advocate Service (TAS) submitted a recommendation to the product owner, adding language to the Schedule B and related instructions to include foreign gifts as potentially reportable. On October 17, 2024, the IRS informed TAS it will stop the automatic assessment of late filed Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts Part IV, and Form 3520-A, Annual Return of Foreign Trust with a U.S. Owner penalties if there is a reasonable cause (RC) statement attached to the return and RC is accepted. On October 24, 2024, the IRS publicized the policy change. Due to the policy change, TAS withdrew the request.

TAS continued working with the IRS to end the automatic assessment of international information return (IIR) penalties and promote the use of administrative reviews instead. The IRS plans to apply the First Time Abatement (FTA) to eligible taxpayers starting in 2026 and will stop automatically assessing certain penalties if reasonable cause is provided. TAS continues to advocate for efficient processes, allowing taxpayers to avoid penalties through reasonable cause, proof of timely filing, or FTA relief before penalties are assessed.

TAS continued working with the IRS to end the automatic assessment of international information return (IIR) penalties and promote the use of administrative reviews instead. The IRS plans to apply the First Time Abatement (FTA) to eligible taxpayers starting in 2026 and will stop automatically assessing certain penalties if reasonable cause is provided.

TAS will continue to advocate for efficient processes, allowing taxpayers to avoid penalties through reasonable cause, proof of timely filing, or FTA relief before penalties are assessed.